Another Supreme Court Decision on Limitation under the Arbitration Act

Recently, the Courts have been called upon to adjudicate a few vexed questions arising out of various provisions of the Arbitration and Conciliation Act. On 28 February, the Supreme Court in State of Maharashtra v. Ark Builders Pvt. Ltd. (available here) decided a question of limitation under S. 34 of the Act. The issue was seemingly innocuous: whether the limitation period would start running from the time a copy of the award was received by the objector from any means, or whether it would start running from the time a signed copy of the award was delivered to him by the arbitrator. Nevertheless, it was a question of significant importance, since often the winning party would send a copy of the award to the losing party for enforcement at the earliest; and the time lag between the two would often decide the maintainability of an application to set aside an award, based upon the time from which the limitation period commenced running.

The key section is S. 31(5), which states:

“After the arbitral award is made, a signed copy shall be delivered to each party.” (Emphasis Supplied)

S. 34(3) states:

“An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award.” (Emphasis Supplied)

The High Court found in favour of the first of the two abovementioned alternatives. In the High Court, the judgment turned upon the meaning of the word “delivered” in S. 31(5). The Court distinguished between the words “delivered” and “dispatched”, and held that “delivered” simply means that a copy of the award should be handed over to the proper parties. It went on to hold that there had been “sufficient compliance” with S. 31(5), as the Respondents had delivered a copy of the Award to the representative of the appellants nine months before the Appellants filed their S. 34 application.

Rejecting the decision of the High Court, the Supreme Court observed that S. 31(1) mandated an arbitral award to be signed by members of the arbitral tribunal, and S. 31(5) referred to a signed copy that was required to be delivered to each party. On this ground, the Court held that what was required was the delivery of a signed copy by the arbitrator, and not any other copy. The Court then went on to hold that S. 34(3)’s requirement of the receipt of an arbitral award could not be read in isolation, and that in the context of S. 31(5), the receipt of the arbitral award referred to the award signed by the arbitrator, as required by S. 31(1).

The Court then relied upon its decision in 2005, in Tecco Trichy Engineers, to hold that the delivery contemplated by S. 31(5) was not a matter of mere formality, but a matter of substance, since the termination of the arbitral proceedings could take place only after its completion. Furthermore, since this led to the creation of certain rights (such as, for instance, the right to file an application to set aside the award), it was an important stage in the arbitral proceedings, and could not lightly be ignored.

Thus, the Court held that: “If the law prescribes that a copy of the order/award is to be communicated, delivered, dispatched, forwarded, rendered or sent to the parties concerned in a particular way and in case the law also sets a period of limitation for challenging the order/award in question by the aggrieved party, then the period of limitation can only commence from the date on which the order/award was received by the party concerned in the manner prescribed by the law.”

Finally, the Court rejected the suggestion that it should interpret the Section the other way in light of the unfair consequences that ensued. While accepting the fact that the Appellants appeared to have derived an undue advantage from the arbitrator’s omission coupled with the Respondents providing them a copy, it held that “that would not change the legal position and it would be wrong to tailor the law according to the facts of a particular case.”

It is interesting to note the Court’s rejection of the substantial compliance doctrine in the present case, in favour of a strict construction of the terms of the statute. Although in many situations, the parties may indeed receive the terms and substance of the award before the arbitrator’s official signed copy, the Court nevertheless preferred to stick to the text of the statute, and avoid relaxing its operation by bringing in the doctrine of substantial compliance, or a like concept. This is a clear example of the Court’s refusal to allow policy considerations to affect its interpretation of a commercial statute. Whether or not that is desirable is an open question.

About the Author

Gautam Bhatia is a final year undergraduate student at the National Law School of India University, Bangalore. He is a reluctant positivist and an enthusiastic liberal, although he would be the first to concede that he doesn't quite know what these terms really mean.

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3 Comments on "Another Supreme Court Decision on Limitation under the Arbitration Act"

The above mentioned judgmenet passed by the Supreme court is correct but still I find that the an act and omission by an Arbitrator can not prejudice the rights of the claimant here in. Supreme court has discussed that the respodent there in cannot suffer as no signed copy of the award was delivered to the respondent. Where I beleieve in a local say which i am translating in english that ” A person who sleeps cannot claim the right”.

I feel the court could have asked the Respondent as to why they slept over the matter since last 7 months, why did they apply for a signed copy in jan 2004 as the same could have been done much earlier. Here the Respondent being aware of the passing of the award should have acted dilligently and for this reason i feel Respondent should have penalised. Since section 31 (5) is of great importance and should not be taken lightly as the compliance of the said section would result in closing of proceeding before the Arbitrator and the starting of court proceeding if aggreived party wants to challange the award.

Since there is a precribed time period for challange which is 3 months and 30 days the limitation shall start from the day of such delivery.the reason a signed copy is required as a xerox copy cannot be accepted by the court while filing section 34.
The supreme court has rightly pointed out that section 31 (5) has to be read with section 34(3) and has put great importance of delivery of a signed copy as the right to file section 34 shall arise from the date of delivery but a fine line could have been drawn in this case as a party being aware of the award being passed and admitedly receiving a xerox copy of the award but the Respondent/Dhrs should not have been let off by the Supreme court who clearly took undue advantage of section 31 (5) in this case. The Respondent/ DHrs got away easily where as they should have been penalised by dismissing the SLP.

The ruling in this dseicion definitely does not seem to be pro-arbitration! I think the practical effect of the judgment will actually lead to a pro-delay situation (as mentioned by Shantanu – the judgment translates into the process of appointed arbitrators appointing their third arbitrator at leisure with no time limit).Admittedly the 1996 Act does not clearly provide for a situation where the arbitrators “fail to appoint” the third arbitrator. But I think the Court had an excellent opportunity to fill this lacuna by looking at the legislative intent underlying Section 8 of the 1940 Act. The Court does not seem to have appreciated the full import of Section 8 of the 1940 Act – for one, Section 8(1)(b) which provides for cases where arbitrators refuse or fail to act was completely ignored. Secondly, while on the one hand emphasizing the use of different expressions in Section 8(1) of the 1940 Act, the Court did not take its analysis of Section 8(1) to its logical conclusion. In spite of the use of different expressions in Sections 8(1)(a), (b) and (c), the 1940 Act provided for the same remedy to parties for all 3 situations. To my mind, this negates the distinction between failure to appoint and failure to agree as two situations having different implications and/or solutions. The interpretation provide by the Court, however, will only ensure that Parties have no solution if the arbitrators appointed by them are refusing to discharge their responsibility of expeditiously appointing the 3rd arbitrator.